Q&A: The World Bank’s Anti-Corruption Head Leonard McCarthy

We sat down last week with Leonard McCarthy, head of the World Bank’s Integrity Vice Presidency, to discuss the group’s annual report and, more broadly, its anti-corruption work.

The interview has been edited for length and clarity.

How assured are you that World Bank President Jim Yong Kim will carry on the anti-corruption work of his predecessor, Robert Zoellick, who stepped down in June?

What’s comforting for me is the support is right up there. [Kim and Zoellick] are both, obviously, serious people. They are both on record as saying corruption steals from the poor.

I think it’s fair to say that if you talk to anyone in the bank, anti-corruption has become a corporate imperative for everyone. It’s obviously something you have to work on continuously, but the realization has set in very well amongst staff generally — that you cannot have optimal reduction of poverty, optimal development and optimal growth if you have a question of integrity in your project. The two go hand in hand.

Do you have the resources you need to do your work?

[Resources are] flat now. But one needs to look back, when I came here, since then our resources have just about doubled. People always want more. Given what’s on the table, and given what our investigations are showing, there’s obviously always a case for sharpening your focus. You know, a lean machine is better than a large locomotive.

We see more complex cases coming through, and for that you need a specific skill. I also think that prevention is something where the possibilities are endless. In fact, if you place people on the ground in key projects, in key sectors over a prolonged period of time, I personally think the effects will be longer lasting.

In the annual report released today, President Kim wrote that the bank needs to continue “prodding national authorities to act upon our referrals of investigative information.” Is the referral system where you would like it to be? And, how do you “prod” national authorities?

Let’s start with the positive side first. We had a case in the Netherlands [that was referred and acted on], cases we had in Indonesia, there’s an example in Nigeria. We’ve always had very, very good working relations with the authorities here in the United States. You look at the work in the U.K. On that front, it’s been very positive.

Secondly, what we are doing is we publish the referrals and the status of the referrals, which is unprecedented. They say light is the best disinfectant. That, coupled with following up in those countries, will generate better efforts.

The test for us is, when those cases go to court, what happens? You ask whether we still have a challenge in that area? The answer is yes. These cases take time to investigate. I would really like to see more results, one way or the other. But compared to where we were eight years ago, this is massive progress.

The number of cross-debarments (in which other multilateral banks honor the World Bank’s sanctions) also jumped over the last year. Is there still room for improvement in that area?

It sends a message to people that the World Bank is serious about this, that companies, individuals, entities that steal from the poor, will be dealt with. And, we’re doing it without any discrimination. We deal with it in a deliberate way, of course, after giving the entities in question a fair opportunity to defend themselves.

With most of the debarments that the bank has issued in the past year, there is a clause called “conditional release.” And so, you can’t really come back unless you’ve cleaned up your act. We also have many companies saying to us, ‘what can we do to be on the white list again?’ All over, debarments have a knock-over effect. All over there are institutions that are watching our debarments and are honoring them. It has a circular effect of cleaning up the business environment.

President Kim also mentioned an “Anti-Corruption Fund” in the annual report that would distribute recovered assets and penalties to victim countries. Authorities in the U.S. have previously expressed concern about restitution in foreign corruption cases, because the money could go back to the same corrupt officials, or new ones that replaced them. How would you mitigate that risk?

At this juncture, it’s still very hypothetical. It’s a concept that we have floated. We need to formulate the bare bones, and the structure, and obviously seek board approval. That, in itself, takes time.

My own sense is that it is an equitable way of ameliorating the effect of corruption in certain sectors. It’s really in furtherance of the bank’s anti-corruption efforts. But I’m painfully aware of that exact concern, namely, you don’t want people to laugh at you.

I want to discuss the Padma Bridge project , that has stalled because of the bank’s concerns about corruption on the project. This has been a very public spat between the bank and the government there. How do you skirt the line between providing needed aid and preventing corruption when you’re dealing with a government that does not necessarily see eye-to-eye with you?

It’s not an exact science, so this is where judgement and the resilience of both institutions and clients will be paramount. Where you have to find the right balance between the role of law and development, and you always want to ensure that corruption does not trump the rule of law. We’ve applied our mind to this case collectively at the highest level, and I think we’ve done the right thing.

We repeatedly said we have concerns based on the evidence we have. We said these are the conditions [to receive funding]. They have now come back and said they have met them. One set of requirements were to agree to a turn key operation. What that essentially means is that by and large, the building of that bridge will be taken out of their hands. This is quite progressive, if not unprecedented.

Number two, we said we would like all the officials that have been implicated by the evidence that has come to our attention, to stand aside until the investigation is complete.

Thirdly, we said we want to see the government put together an independent inquiry and investigating team within the anti-corruption authority structure, to give focused and dedicated and credible attention to the facts.

And number four, we said we want them to agree to a composition of a panel, decided by the World Bank, that will be the grand seigneurs, that will ask questions. People that have got moral authority and international gravitas. And they agreed to that. So we are having the discussions now about how you make this happen.

Throughout, there is an air of conditionality around this. I think it’s quite unusual. I think if we all apply our minds the best we can and we have serious effort by our counterparts, it should work. Whether it will exclude every little piece and allegation of corruption along the way, I can’t say. But I don’t think that’s my job.

Is this a model that could be used on future projects?

There are serious people internationally, who have said to me that whoever dreamed up this model had a brainwave. And it’s something that could be used, not only by the bank, but in other setups quite constructively, even in the private sector.

I don’t want to pronounce on that, we’ll have to see what comes out of this one, but there are serious people that tell me this is a great thing, and it may actually be a credible way of engaging in difficult cases, in difficult countries, in difficult sectors in the future.

Comments (4 of 4)

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3:06 am November 25, 2012

Myron Betshanger wrote :

First and foremost I wish to extent my congratulations to Leonard McCarthy and his team at the World Bank's Integrity Vice Presidency. As Leonard correctly pointed out the global fight against corruption is a continuous battle and requires gigantic and coordinated efforts among states, international organizations and multinational and national corporate entities. The progress made by the WB Integrity Vice Presidency in fighting corruption in WB funded projects has gain much momentum under Leonard McCarthy's leadership. This fact is borne out by the number of memorandum of understandings concluded between the World Bank and other international organizations such as the International Criminal Court, Interpol, etc. the cross-debarment arrangement between the WB and regional development banks and other financial institutions and the International Corruption Hunters Alliance, the latter being an initiative spearheaded by Leonard McCarthy and to which many leaders of international organizations has already pledge their support.

I am hopeful that the International Corruption Hunters Alliance may or can be used as a launching pad for a more comprehensive International Anti-corruption Task Force with well resourced investigators and supported by a prosecutions team that have the required standing to institute prosecutions against corrupt state/public officials in the International Criminal Court (ICC), where such officials have engaged in instances of international corruption/money-laundering and where their national authorities fail either to institute prosecutions because these officials are able to manipulate their national laws to avoid such prosecutions. Admittedly, there may be many issues arising from such an international enforcement agency and mechanism and perhaps an idea for a later debate. While the present referral and cross-debarment system may have a number of short-comings, what is far more important is that Leonard McCarthy and his team at the World Bank's Integrity Vice Presidency has pointed us in the right direction towards a more concerted and coordinated effort in fighting corruption

1:26 pm October 12, 2012

Karen Hudes wrote :

The Wall Street Journal needs to check the facts before running inaccurate articles. The World Bank's Board asked for an assessment of the malfunctioning of the Institutional Integrity Department. Paul Volcker headed a panel that was discredited after "deliberate and substantial interference with this supposedly independent commission" came to light. http://www.commondreams.org/newswire/2010/04/06-3 Real anti corruption work at the World Bank will have to wait for the UK's Financial Reporting Council to complete its ongoing investigation. Meanwhile, US taxpayers are holding up the US contribution to the International Bank for Reconstruction and Development capital increase until there is substantial progress in vindicating the World Bank's whistleblowers, many of whom did a better job in identifying how corruption is impeding development than either WSJ or Mr. McCarthy. http://www.change.org/petitions/tell-treasury-protect-whistleblowers-at-u-s-taxpayer-funded-international-banks

4:12 pm October 9, 2012

Frank Vogl wrote :

It is important to make a fundamental distinction between the World Bank's increasingly effective efforts to reduce abuse in procurement and pursue the activities of its "Integrity Vice Presidency," and the far more important World Bank role of using its resources, its knowledge and its leverage to curb corruption in its member countries, notably those to which it makes loans and grants. The Bank is not nearly as successful as it should be in this latter area and its own Operations Evaluations reports have highlighted shortcomings. It is to be hoped that Mr. Kim will display far more zeal and toughness in this area than his predecessor. The full value and potential of development assistance to reduce poverty across the poorest nations of the world is undermined by high levels of corruption in many of the governments of these countries. I saw the abuse first hand over 20 years ago when I served as the Bank's chief spokesman. My colleagues in transparency international have sought to press the bank to be far more effective over the years and I outline the key steps it needs to take in my new book, Waging War on Corruption.
Sincerely,
Frank Vogl

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Corruption Currents, The Wall Street Journal’s corruption blog, digs into the ever-present and ever-changing world of corporate corruption. It is a source of news, analysis and commentary for those who earn a living by finding corruption or by avoiding it. Corruption Currents is written by Christopher. M. Matthews and Sam Rubenfeld and edited by Nick Elliott.

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